Roundtable Weekly - January 18, 2019

Policy Landscape

White House Doubles Estimate of Shutdown’s Economic Impact

Nearly a month into the partial government shutdown, the impasse over funding of a border wall on the Mexican border continues with no sign that an agreement between President Trump and Congress is near. (Axios, Jan. 16

White House Council of Economic Advisers Chairman Kevin Hassett this week doubled the estimate of how the government's partial shutdown is reducing economic growth. The initial cost to the economy, estimated at 0.1 percentage point in growth every two weeks, was revised to 0.13 percentage point every week.  ( Fox  interview , Jan. 15 /Forbes, Jan. 16 / Vox, Jan. 18 )

  • White House Council of Economic Advisers Chairman Kevin Hassett this week doubled the estimate of how the government's partial shutdown is reducing economic growth. The initial cost to the economy, estimated at 0.1 percentage point in growth every two weeks, was revised to 0.13 percentage point every week.  (Forbes, Jan. 16 and Vox, Jan. 18) 
  • Another potential impact of the shutdown may affect landlords who rent to the federal government.  According to Bloomberg Government, the General Services Administration (GSA) usually issues the government's rental obligations, but with furloughed staff unable to process the checks, the payments may stop.  "The GSA leased more than 190 million square feet in nearly 7,000 buildings nationwide at the start of its 2018 fiscal year, representing roughly $5.6 billion in annual rent payments," BGov reported Jan. 15. The GSA states it "is aware of concerns from the Lessor community regarding GSA's ability to make timely rent payments," and "is diligently exploring all available options."   
  • Federal Reserve Chairman Jerome Powell said last week that if the shutdown is prolonged, it would start to noticeably affect the economy.  "If we have an extended shutdown, I do think that would show up in the data pretty clear."  Powell added that the full economic impact of closed government agencies is difficult to track because data usually provided by the Commerce Department is not currently available, due to the shutdown.  (Economic Club of Washington  video interview at 13:30 and The Hill, Jan. 10) 
  • The results of a Federal Reserve survey of the 12 regional Fed banks through Jan. 7 known as "the beige book" were released this week, showing a generally positive picture for the U.S. economy but revealing an undercurrent of worry.  (WSJ, Jan. 16)  

    The Fed' s  " beige book " shows a generally positive picture for the U.S. economy but reveals an undercurrent of worry. (WSJ, Jan. 16)

  • According to the Fed report, "Outlooks generally remained positive, but many Districts reported that contacts had become less optimistic in response to increased financial market volatility, rising short-term interest rates, falling energy prices, and elevated trade and political uncertainty." 
  • The report adds that "A number of Districts reported rising home prices, while prices for commercial and industrial space either increased or were flat" while noting that U.S. labor markets were shown to have tightened as businesses struggled to find workers at any skill level. (Reuters, Jan. 16) 

The Fed's Open Market Committee will meet next on Jan. 29-30, the same time as The Roundtable's State of the Industry Meeting in Washington. 

 

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Opportunity Zones - Tax Policy

Industry, Investors Await Opportunity Zones’ Clarifying Guidance Amid Shutdown Delay

The government shutdown is slowing progress on tax guidance important to real estate, including Opportunity Zone incentives.  The IRS cancelled a Jan. 10 administrative hearing on the October proposed regulations.  However, under a special two-year IRS appropriation for tax reform implementation, and the agency’s own contingency plan, background work continues on Opportunity Zone rules and other  critical regulatory guidance.”

The  Wall Street Journal reported on Jan. 15 that “there has been a surge in site acquisitions in the zones last year as developers planned for a surge of investments. There were 58% more deals [in] the zones in the third quarter of 2018, compared with the same quarter in 2017.”  (WSJ, Jan. 15 and Real Capital Analytics.)

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  • The Wall Street Journal reported on Jan. 15 that “there has been a surge in site acquisitions in the zones last year as developers planned for a surge of investments. There were 58% more deals [in] the zones in the third quarter of 2018, compared with the same quarter in 2017.”  (WSJ, Jan. 15 and Real Capital Analytics.)
  • John Lettieri, chief executive of the Economic Innovation Group, a public policy organization that advocated for the inclusion of opportunity zones in last year’s tax overhaul, told The Journal, “The sooner you get regulatory clarity, the more benefit is available to investors and the sooner they can stand up a marketplace.” (WSJ, Jan. 15)
  • The Real Estate Roundtable on Dec. 19 provided formal commentsthat encourages Treasury and the IRS to clarify a number of tax issues that would remove uncertainty for potential opportunity zone investors and opportunity fund managers.  The letter was the second round of Roundtable comments on opportunity zones following Treasury’s publication of proposed regulations last October. (Roundtable WeeklyOct. 21, 2018 and Dec. 19, 2018)
  • Roundtable Senior Vice President & Counsel Ryan McCormick participated this week in a CBRE conference call presentation on qualified opportunity zones.  Joining McCormick was Steven Kennedy (Director, PwC), a member of The Roundtable’s Tax Policy Advisory Committee Working Group on Opportunity Zones, and experts from CBRE’s capital markets and research team. The Jan. 16 CBRE PowerPoint presentation can be downloaded here.
  • Also this week, Jared Bernstein, a former chief economist to former Vice President Joe Biden, authored an op-ed in the Washington Postin support of the opportunity zone program.  Bernstein and Kevin Hassett, current chairman of the White House Council of Economic Advisers, wrote the original paper that put forward the opportunity zone concept.  In the Jan. 14 op-ed, Bernstein states, “[M]ost OZ communities have faced disinvestment and depopulation for so long, they have both the need and capacity to absorb new investment, development and people without displacing local residents ... I suggest we give OZs a chance, while scrutinizing their progress.”

The future of the OZ program will be discussed by Sen. Tim Scott (R-SC) – who led the effort in Congress for enactment of the opportunity zone program – and Roundtable member Geordy Johnson (CEO, Johnson Development Associates, Inc.) on Jan. 29 during The Roundtable’s State of the Industry Meeting in Washington, DC.  Opportunity Zones will also be a focus of The Roundtable’s TPAC meeting on Jan. 30.

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116th Congress

House Congressional Committees Move Forward on Policy Agendas, Add New Members

With Democrats now in control of the House of Representatives, key congressional committee chairs this week announced their policy agendas and appointed additional members.  (Roundtable Weekly, Jan. 11)

House Financial Service Committee:

  • Rep. Maxine Waters (D-CA), the new chair of the powerful House Financial Services Committee, on Wednesday  outlined a broad range of priorities that include policy issues affecting commercial real estate.  In her first speech as committee chairwoman, Waters said, “Some of the big issues we are going to try to work on a bipartisan basis include long-term reauthorization and reform of the National Flood Insurance Program (NFIP), Terrorism Risk Insurance (TRIA), and the reauthorization of the job-creating Export-Import Bank.”  (House Financial Committee Services, Jan. 16)

    Rep. Maxine Waters (D-CA), the new chair of the powerful  House Financial Services Committee outlined a broad range of priorities  that include policy issues affecting commercial real estate.


     
    [The Terrorism Risk Insurance Act, enacted following 9/11 and extended three times since 2002, is currently scheduled to sunset at the end of 2020.  A long-term extension of TRIA is a major policy focus of The Real Estate Roundtable. Terrorism risk insurance coverage is essential for many businesses – including commercial real estate. Without TRIA, private markets cannot provide the American economy with the coverage it needs. The Roundtable also supports a long-term reauthorization of NFIP and improvements to the program that would expand private markets.]
  • Chairwoman Waters addressed a broad range of other financial policy priorities, including regulatory oversight of Wall Street; the future of the government sponsored enterprises Fannie Mae and Freddie Mac; diversity in the workplace; and housing affordability.

[A Federal Reserve report released this week addresses how student debt hinders homebuying for young adults and the role it plays on their decisions to live in rural or urban areas (Wall Street Journal and CNBC, Jan. 16).  “Over 20 percent of the overall decline in homeownership among the young can be attributed to the rise in student loan debt.  This represents over 400,000 young individuals who would have owned a home in 2014 had it not been for the rise in debt,” according to the report. “As policymakers evaluate ways to aid student borrowers, they may wish to consider policies that reduce the cost of tuition …”  (Federal Reserve, Consumer & Community Context, Jan. 2019) ]

  • Waters added in her Wednesday speech, “As Chairwoman I will continue to find areas where we can all work together. Ranking Member McHenry and I have a relationship, and just last Congress we worked together on several bills … So I am very hopeful that we will be able to get some good bipartisan work done in Committee.”  (House Financial Services Committee, Jan. 16) Rep. Patrick McHenry (R-NC), the House GOP’s former chief deputy whip, is now the committee’s ranking member.
  • House Financial Services member Rep. J. French Hill (R-AR) will address a joint Real Estate Capital Policy Advisory Committee and Research Committee (RECPAC) meeting on the morning of Jan. 29, before the start of the Roundtable’s State of the Industry business meeting.

House Ways and Means Committee:

  • Treasury deputy assistant secretary Jennifer Bang responded to Neal’s invitation by offering other officials to testify. “If the purpose of the upcoming hearing is to inform Congress and the public, we are confident that goal will be best served by testimony from the senior Department officials with the deepest and broadest expertise on the subject of the hearing,” (The Hill, Jan. 17)  
  • Yesterday, Neal urged Mnuchin to reconsider the request, noting that Mnuchin's trip to Davos, Switzerland for the annual World Economic Forum next week has been cancelled.  “With more than 70,000 Treasury employees furloughed and missing paychecks, I strongly believe Secretary Mnuchin himself should appear before our committee and answer members’ questions. Nearly a month into the shutdown and with tax filing season rapidly approaching, the Treasury Department has announced plans to call more than 35,000 employees back to work, but has not provided details about this action to our committee,” Neal stated.  (House Ways and Means News Release, Jan. 17)

Chairman Neal – the long-standing co-chair of the House Real Estate Caucus – will discuss prospects for tax policy legislation with Roundtable Board Member John Fish (Chairman and CEO, SUFFOLK) during The Roundtable’s State of The Industry Meeting on Jan. 29 in Washington, DC.  

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